India Cotton Trader Boosts Buying to Help Suffering Farmers
An Indian state-run cotton buyer is bolstering purchases from farmers to stop them making distressed sales.
(Bloomberg) -- An Indian state-run cotton buyer is boosting purchases from farmers to prevent them from making distressed sales as the spreading coronavirus curbs demand in key export markets and causes prices to slump.
Cotton Corp. of India Ltd. has bought about 7.5 million bales (170 kilograms each) from farmers so far in 2019-20, and will buy more if growers offer supplies, Chairman P. Alli Rani said in a phone interview.
Transport of the fiber across China is being delayed, and concern is mounting that factory closures will weigh on demand. Logistical issues mean mills are finding it hard to take delivery of cotton and ship yarn products to buyers.
Cotton futures in New York have fallen about 12% from their Jan. 13 high, while local Indian prices have dropped 7% since Jan. 22.
For Arun Sekhsaria, a top executive at one of the biggest cotton exporters, the virus has meant that he can’t risk selling abroad, though he notes that the support of the state buyer means cotton producers are better off than most.
“I am just keeping quiet,” said Sekhsaria, managing director of D.D. Cotton. “I am not booking any cargoes for exports as I can’t travel overseas now if there is any issue with the shipments for any reason. Everything is uncertain and nobody knows where prices will go.”
Cotton Corp.’s purchases are its biggest on an annual basis since 2014-15, when it bought 8.7 million bales. The company, which acquires fiber at government-set minimum prices, bought about 30% of total market arrivals so far this year and is currently purchasing about 50% of daily arrivals, Rani said.
The company has separately bought about 8,000 bales of long staple cotton from ginners at market rates this year through its commercial business, she said. It bought 7,700 bales in 2018-19, according to Cotton Corp.
“All my infrastructure has been engaged in minimum support price operations,” Rani said. “I am not really concentrating on commercial purchases.” About 65% of total expected production has already arrived in the market, with the remainder set to arrive in the next two to three months.
Read: Coronavirus Causing ‘Big Slowdown’ in Chinese Cotton Factories
Demand for Indian cotton has fallen from most buyers, including Vietnam and China, Sekhsaria said. That leaves Bangladesh as its only export option, and the nation may buy as much as 2.5 million bales in 2019-20, he said.
The current domestic cotton price makes it attractive as it’s lower than the government-set minimum support price, said Vinay Kotak, a director of Kotak Commodity Services Pvt., one of India’s biggest cotton exporters. “Imports are also becoming costlier due to a depreciation in the rupee.”
Some cotton ginners will lose money because of their expensive stockpiles, Kotak said. “We are seeing a new low every day. There is still uncertainty in the market. If the virus settles, the prices will shoot up.”
“International prices are falling because of fear psychosis,” Kotak said. “We are yet to start business with Chinese buyers.”
--With assistance from Manish Modi.
To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net
To contact the editors responsible for this story: Anna Kitanaka at akitanaka@bloomberg.net, Ainslie Chandler
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